Yes, it is possible to get a mortgage with one year of self-employment. However, most lenders want to see a longer track record of self-employment income to assess the risk and ensure that you are able to make the mortgage payments.

There are some lenders who may be more flexible and consider applicants with less than two years of self-employment income.

In general, to qualify for a mortgage as a self-employed borrower, you would need to provide evidence of your income and financial stability. Having a lengthy history of employment may increase your chances of getting a mortgage as a self-employed borrower with just one year of accounts.

Why is it difficult to get a self-employed mortgage with only 1 year’s accounts?

Getting a self-employed mortgage with only 1 year’s accounts can be challenging due to the higher level of risk associated with self-employed borrowers.

Unlike employed individuals who receive regular paychecks, self-employed business owners have a variable income, making their earnings less predictable. Lenders are concerned about the risk of default, and they want to ensure borrowers have the ability to repay their mortgages on time.

With just one year of accounts, lenders may consider a borrower’s business performance to be insufficiently established. Many lenders require at least two to three years of accounts to establish a pattern of stable revenue and assess the borrower’s affordability.

How much can I borrow?

The maximum amount you can obtain through a self-employed mortgage is contingent upon several factors. Your income assessment is influenced by the type of business structure you have adopted, whether you are a sole trader or a limited company.

In the case of a limited company, certain lenders may consider lending based on a combination of your salary and dividends, while others may assess your profit and salary. Typically, lenders offer loans based on 4.5 to 5 times your income, although certain clients may be eligible for higher multiples.

How to get a self-employed mortgage with 1 year’s accounts

Here are a few tips to help secure a mortgage with 1 years accounts:

Proving your income

When applying for a self-employed mortgage, you will typically be required to provide documentation that proves your income.

The exact documents you need may vary depending on the lender and the type of business structure you have, but generally, the following documents may be required:

  • Tax returns: You will likely need to provide at least two years of tax returns, including all schedules and attachments, to verify your income.
  • Business accounts: If you are a sole trader or a partnership, you may need to provide certified accounts for your business.
  • Bank statements: You may need to provide bank statements for your business and personal accounts to show your income and expenses.
  • SA302 forms: These are tax calculation forms that show how much tax you owe or are due to receive from HM Revenue & Customs (HMRC). They can be obtained by logging in to your HMRC online account.
  • Proof of ongoing contracts: If you have ongoing contracts, you may need to provide evidence of these contracts to demonstrate the continuity of your income.
  • Proof of future income: If you have a contract lined up that will provide future income, you may need to provide evidence of this contract, such as a letter from the client.
  • Accountant’s reference: some lenders may require an accountants reference or financial projections when assessing your income for a self-employed mortgage. This is because they want to ensure that your income is sustainable and likely to continue in the future

Get an accountant

Having an accountant can help improve your chances of getting a mortgage when you have only been self-employed for one year. This is because an accountant can help you to organise your financial records, prepare your accounts, and provide financial projections that demonstrate your income and ability to repay the mortgage.

Lenders often prefer to see a history of stable income when assessing mortgage applications. However, if you have been self-employed for less than two years, some lenders may consider your application based on your most recent tax returns and other financial information.

In this situation, having an accountant who can help you prepare your accounts and ensure that they are accurate and complete can be invaluable. An accountant can also provide you with advice on how to maximise your income and reduce your tax liability, which can help to strengthen your application.

Cash flow

Having sufficient cash flow through your business can increase your chances of securing a mortgage when you have just one year of accounts.

Cash flow is a measure of the money that flows in and out of your business, and it reflects your ability to generate revenue, pay your expenses, and have funds available for personal use.

When applying for a mortgage, lenders will typically look at your income, expenses, and assets to assess your ability to repay the loan.

If you have a strong cash flow, it can demonstrate that your business is profitable and that you have the financial stability to make your mortgage payments.

To improve your cash flow, you may want to consider:

  • Reviewing your expenses: Look for ways to reduce your business expenses without compromising your operations
  • Increasing your revenue: Explore new opportunities to generate income, such as expanding your product line or increasing your marketing efforts.
  • Managing your invoicing and collections: Ensure that you invoice promptly and follow up on any overdue payments to maintain a healthy cash flow.
  • Building up your savings: Having a cash reserve can help to demonstrate your financial stability and ability to repay the mortgage.
  • Seeking advice: Consider consulting with a financial professional, such as an accountant or financial advisor, who can provide you with guidance on how to improve your cash flow and financial position.

Improve your credit rating – improve your chances

Improving your credit rating can help your chances of securing a self-employed mortgage when you have only one year of books. Your credit rating is a measure of your creditworthiness and is an important factor that lenders consider when assessing your mortgage application.

If you have a good credit rating, it can demonstrate that you are responsible with credit and are likely to make your mortgage payments on time. This can help to offset some of the risk associated with self-employed borrowers who have less history of stable income.

To improve your credit rating, you may want to consider:

  • Checking your credit report: Obtain a copy of your credit report and review it for errors or inaccuracies.
  • Making payments on time: Pay your bills and credit cards on time and in full, as this is a key factor that lenders consider when assessing your creditworthiness.
  • Reducing your debt: Keep your balances low on credit cards and other types of debt.
  • Avoiding new credit applications: Limit the number of new credit applications you make, as each application can have a temporary negative impact on your credit rating.
  • Building a positive credit history: Consider taking out a credit card or loan and making payments on time to demonstrate your creditworthiness.

A bigger deposit means less borrowed

Putting a bigger deposit down on a mortgage can help improve your chances of securing a mortgage with only one year of accounts. This is because a larger deposit means that you need to borrow less money from the lender, which can make you a lower-risk borrower.

A larger deposit can also demonstrate to lenders that you have the financial means to save and budget effectively, which can help offset the lack of a longer financial history as a self-employed individual.

In addition, a larger deposit can often result in lower interest rates and monthly mortgage payments, which can make your mortgage more affordable and easier to manage.

Speak to an Expert

Whether you’ve just had an offer accepted on a property and you’re ready to go, or you’re simply wondering how much you need to save for a deposit, it’s never too soon to reach out.

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What interest rates are available?

The interest rates that you can access when securing a mortgage with one year of accounts will depend on your individual circumstances and the current market conditions.

Only a handful of mainstream mortgage lenders consider mortgages for applicants with only one year of accounts, while the vast majority are specialist lenders.

If your application can be placed with a high street or mainstream lender, then you may be able to access more competitive interest rates compared to if you need to use a specialist lender.

Contractors or CIS workers

If you work as a contractor or construction worker under the Construction Industry Scheme (CIS), you may find it easier to secure a mortgage with just one year of accounts or potentially even less.

This is because some lenders may consider applicants in these professions as employed rather than self-employed, even though they are technically self-employed under the CIS.

Work with a mortgage broker

Seeking the help of a mortgage broker like Strive can improve your chances of securing a mortgage with only one year of self-employment accounts. A mortgage broker is a professional who specialises in helping borrowers find the right mortgage products for their needs and financial situation.

A mortgage broker can offer several benefits, including:

  • Access to a wider range of mortgage products: A broker can search across multiple lenders to find a mortgage product that is best suited to your needs, including lenders who may be more willing to work with self-employed borrowers with only one year of accounts.
  • Expertise in the mortgage application process: A broker can guide you through the mortgage application process and help you prepare the necessary documentation and information that lenders require.
  • Negotiating on your behalf: A broker can negotiate with lenders on your behalf to help secure a more favourable interest rate and mortgage terms.
  • Saving you time and effort: A broker can save you time and effort by doing the legwork for you, including researching mortgage products, completing paperwork, and communicating with lenders.
  • Offering personalised advice: A broker can offer personalised advice based on your individual financial situation, including helping you understand how much you can afford to borrow, how to improve your credit score, and how to save for a larger deposit.

By working with a mortgage broker, you can increase your chances of securing a mortgage with only one year of self-employment accounts, while also receiving personalised advice and guidance throughout the mortgage application process.

For more info on self-employed mortgages, please contact a member of the Strive team, by emailing [email protected] or call us on 01273 002697.